FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14659
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TECHDYNE, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1709103
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2230 West 77th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 556-9210
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value - 6,596,990 shares as of July 31, 2000
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
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INDEX
PART I -- FINANCIAL INFORMATION
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The Consolidated Condensed Statements of Operations (Unaudited) for the
three and six months ended June 30, 2000 and June 30, 1999 include the
accounts of the Registrant and its subsidiaries.
Item 1. Financial Statements
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(1) Consolidated Condensed Statements of Operations for the three
months and six months ended June 30, 2000 and June 30, 1999.
(2) Consolidated Condensed Balance Sheets as of June 30, 2000
and December 31, 1999.
(3) Consolidated Condensed Statements of Cash Flows for the six
months ended June 30, 2000 and June 30, 1999.
(4) Notes to Consolidated Condensed Financial Statements as of
June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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PART II -- OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
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Item 6. Exhibits and Reports on Form 8-K
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<PAGE>
PART I -- FINANCIAL INFORMATION
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Item 1. Financial Statements
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
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June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Sales $12,280,407 $10,456,793 $24,918,801 $20,291,787
Interest and other income 16,572 16,268 26,791 38,389
----------- ----------- ----------- -----------
12,296,979 10,473,061 24,945,592 20,330,176
Cost and expenses:
Cost of goods sold 10,859,971 9,200,419 22,335,937 18,019,367
Selling, general and administrative
expenses 1,204,937 1,057,138 2,403,317 2,052,197
Interest expense 202,669 177,480 397,635 342,803
----------- ----------- ----------- -----------
12,267,577 10,435,037 25,136,889 20,414,367
----------- ----------- ----------- -----------
Income (loss) before income taxes 29,402 38,024 (191,297) (84,191)
Income tax provision 65,039 35,519 45,343 62,432
----------- ----------- ----------- -----------
Net loss (income) $ (35,637) $ 2,505 $ 236,640) $ (146,623)
=========== =========== =========== ===========
(Loss) earnings per share:
Basic $(.01) $-- $(.04) $(.03)
===== === ===== =====
Diluted $(.01) $-- $(.04) $(.03)
===== === ===== =====
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999(A)
---- ------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 132,712 $ 190,343
Accounts receivable, less allowances of $73,000 at June 30, 2000
and $67,000 December 31, 1999 7,651,632 8,074,567
Inventories, less allowances for obsolescence of $825,000 at
June 30, 2000 and $709,000 at December 31, 1999 10,067,597 9,492,309
Prepaid expenses and other current assets 599,536 296,193
Deferred tax asset 440,759 440,759
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Total current assets 18,892,236 18,494,171
Property and equipment:
Land and improvements 181,200 193,200
Buildings and building improvements 699,698 746,036
Machinery and equipment 8,139,048 7,853,621
Tools and dies 725,803 843,202
Leasehold improvements 583,939 559,961
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10,329,688 10,196,020
Less accumulated depreciation and amortization 4,902,359 4,836,365
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5,427,329 5,359,655
Deferred expenses and other assets 80,163 94,435
Costs in excess of net tangible assets acquired, less
accumulated amortization of $385,000 at June 30, 2000 and
$317,000 at December 31, 1999 3,174,955 2,848,038
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$27,574,683 $26,796,299
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,253,160 $ 5,049,456
Accrued expenses 1,947,672 1,679,513
Current portion of long-term debt 578,944 576,239
Income taxes payable 63,282 203,043
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Total current liabilities 7,843,058 7,508,251
Deferred gain on sale of real estate 161,047 161,047
Long-term debt, less current portion 8,228,434 7,463,224
Advances from parent 511,408 498,315
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares;
issued and outstanding 6,596,990 shares at June 30, 2000
and 6,451,990 shares at December 31, 1999 65,970 64,520
Capital in excess of par value 11,623,803 11,371,503
Accumulated deficit (241,085) (4,445)
Accumulated other comprehensive loss (202,302) (102,766)
Notes receivable from options exercised (415,650) (163,350)
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Total stockholders' equity 10,830,736 11,165,462
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$27,574,683 $26,796,299
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</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 filed with the Securities and Exchange
Commission in March 2000.
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
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2000 1999
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (236,640) $ (146,623)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 615,574 570,233
Amortization 86,776 65,660
Provision for inventory obsolescence 239,950 167,072
Consultant stock option expense 16,553 ---
Increase (decrease) relating to operating activities from:
Accounts receivable 369,870 (621,675)
Inventories (863,393) (1,632,393)
Prepaid expenses and other current assets (331,747) (77,004)
Accounts payable 221,496 1,521,487
Accrued expenses 302,426 87,656
Income taxes payable (139,678) (39,377)
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Net cash provided by (used in) operating activities 281,187 (104,964)
Investing activities:
Additions to property and equipment, net of minor disposals (735,246) (724,080)
Subsidiary acquisition payments (395,806) (289,531)
Deferred expenses and other assets (4,544) (2,125)
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Net cash used in investing activities (1,135,596) (1,015,736)
Financing activities:
Proceeds from long-term borrowings 150,000 375,000
Line of credit net borrowings (payments) 889,644 345,325
Payments on long-term borrowings (283,778) (360,284)
Exercise of stock options 1,450 500
Increase (decrease) in advances from parent 13,093 (25,871)
Deferred financing costs --- (451)
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Net cash provided by financing activities 770,409 334,219
Effect of exchange rate fluctuations on cash 26,369 (33,975)
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Decrease in cash and cash equivalents (57,631) (820,456)
Cash and cash equivalents at beginning of period 190,343 1,659,737
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Cash and cash equivalents at end of period $ 132,712 $ 839,281
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</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Techdyne,
Inc. ("Techdyne") and its subsidiaries, including Lytton Incorporated
("Lytton"), Techdyne (Europe) Limited ("Techdyne (Europe)"), and Techdyne
(Livingston) Limited which is a subsidiary of Techdyne (Europe), collectively
referred to as the "Company." All material intercompany accounts and
transactions have been eliminated in consolidation. The Company is a 70.9%
owned subsidiary of Medicore, Inc. (the "Parent"). See Note 5.
Major Customers
A majority of the Company's sales are to certain major customers. The
loss of or substantially reduced sales to any of these customers would have
an adverse effect on the Company's operations if such sales were not replaced.
Inventories
Inventories, which consist primarily of raw materials used in the
production of electronic components, are valued at the lower of cost (first-in,
first-out and/or weighted average cost method) or market value. The cost of
finished goods and work in process consists of direct materials, direct labor
and an appropriate portion of fixed and variable manufacturing overhead.
Inventories are comprised of following:
June 30, December 31,
2000 1999
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Finished goods $ 635,434 $ 1,018,131
Work in process 2,692,595 2,463,191
Raw materials and supplies 6,739,568 6,010,987
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$10,067,597 $ 9,492,309
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Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities is comprised as follows:
June 30, December 31,
1999 1998
---- ----
Accrued compensation $ 396,252 $ 466,481
Other 1,551,420 1,213,032
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$ 1,947,672 $ 1,679,513
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Earnings (Loss) per Share
Diluted earnings per share gives effect to potential common shares that
were dilutive and outstanding during the period, such as stock options and
warrants using the treasury stock method and average market price, shares
assumed to be converted relating to the convertible promissory note to the
Company's Parent (with earnings adjusted for interest expense related to the
convertible promissory note which is assumed to be converted) and contingent
shares for the stock price guarantee for the acquisition of Lytton. No
potentially dilutive securities were included in the diluted earnings per
share computation for the three months or six months ended June 30, 2000 or
for the six months ended June 30, 1999, as a result of exercise prices and
the net loss, and to include them would be anti-dilutive.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--Continued
Following is a reconciliation of amounts used in the basic and diluted
computations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
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2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $ (35,637) $ 2,505 $ (236,640) $ (146,623)
Weighted average shares - denominator
basic computation 6,596,990 5,278,738 6,553,171 5,264,532
Effect of dilutive securities:
Stock options --- 76,363 --- ---
Contingent stock - acquisition --- 300,000 --- ---
----------- ----------- ----------- -----------
Weighted average shares, as adjusted -
denominator diluted computation 6,596,990 5,655,101 6,553,171 5,264,532
(Loss) earnings per share:
Basic $(.01) $-- $(.04) $(.03)
===== === ===== =====
Diluted $(.01) $-- $(.04) $(.03)
===== === ===== =====
</TABLE>
The Company has various potentially dilutive stock options and warrants.
See Notes 7 and 8.
Comprehensive Loss
Comprehensive loss consists of the net loss and foreign currency
translation adjustments.
Below is a detail of comprehensive loss for the three months and six
months ended June 30, 2000 and June 30, 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $ (35,637) $ 2,505 $ (236,640) $ (146,623)
Other comprehensive loss:
Foreign currency translation (89,371) (38,696) (99,536) (108,081)
---------- ---------- ---------- ----------
Comprehensive loss $ (125,008) $ (36,191) $ (336,176) $ (254,704)
========== ========== ========== ==========
</TABLE>
New Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for
fiscal quarters of fiscal years beginning after June 15, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments
and for hedging activities and requires, among other things, that all
derivatives be recognized as either assets or liabilities in the statement
of financial position and that those instruments be measured at fair value.
The Company is in the process of determining the impact that the adoption
of FAS 133 will have on its consolidated financial statements.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(Unaudited)
NOTE 2--Interim Adjustments
The financial summaries for the three months and six months ended June
30, 2000 and June 30, 1999 are unaudited and include, in the opinion of
management of the Company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the earnings for such periods.
Operating results for the three months and six months ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2000.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these Consoli-
dated Condensed Financial Statements be read in conjunction with the
financial statements and notes included in the Company's latest annual
report for the year ended December 31, 1999.
NOTE 3--Long-term Debt
In February, 2000, the Company refinanced its line of credit and term
loans through the same bank which handles Lytton's financing. One credit
facility is a $4,500,000 three year committed line of credit facility
maturing February, 2003 with interest payable monthly at prime minus 1/4%
and an option to fix the rate for up to 180 days at Libor plus 2.50%. This
line of credit had an outstanding balance of approximately $3,255,000 at June
30, 2000. The bank also extended a $1,000,000 five year term loan maturing
February 2005 with the same interest rate as for the line of credit. This
term loan had an outstanding balance of approximately $933,000 at June 30,
2000. If the Company achieves certain financial criteria for its year ended
December 31, 2000, it would receive a rate reduction under both the prime and
Libor alternatives. The loans are secured by the business assets of the
Company and are cross collateralized with the debt of Lytton. These loans
replaced bank debt which consisted at December 31, 1999 of a line of credit
with an outstanding balance of $1,600,000, term loans with a combined
outstanding balance of approximately $1,552,000 and another bank loan with
an outstanding balance of $145,000. The total principal balance refinanced
was approximately $3,260,000 representing a non-cash financing activity which
is a supplemental disclosure required by Financial Accounting Standards Board
Statement No. 95, "Statement of Cash Flows" (FAS 95). The refinancing also
included payment of approximately $17,000 accrued interest.
In conjunction with the Company's refinancing, the bank amended the terms
of the Lytton line of credit and term loan and equipment loan agreements to
make Lytton's line of credit a three year committed facility and to amend the
interest rates on Lytton's line of credit, term loan and equipment loan
agreements to coincide with those of the Company's loan agreements.
Lytton has a $3,000,000 three year committed line of credit facility
maturing February 2003 with interest payable monthly at prime minus 1/4%.
There was an outstanding balance on this loan of approximately $2,742,000 at
June 30, 2000 and $2,830,000 December 31, 1999. Lytton has a $1,400,000
installment loan with interest at prime minus 1/4% and monthly payments of
$23,333 plus interest payable in 60 monthly installments having commenced
August 1, 1999 with the final installment due June 30, 2004. The balance
outstanding on this loan was approximately $1,153,000 at June 30, 2000 and
$1,283,000 at December 31, 1999. Lytton also has a $500,000 equipment loan
agreement with the same bank payable through June 30, 2004 with interest at
prime minus 1/4%. This loan had an outstanding balance of $150,000 at June
30, 2000 with no outstanding balance as of December 31, 1999. All of these
bank loans are secured by the business assets of Lytton and all have an
option to fix the rate for up to 180 days at Libor plus 2.50%.
The prime rate was 9.50% as of June 30, 2000, and 8.50% as of December 31,
1999.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(Unaudited)
NOTE 3--Long-term Debt-Continued
Lytton has an equipment loan at an annual interest rate of 5.5% maturing
in April 2001 with monthly payments of principal and interest of $4,298. This
loan had a balance of approximately $90,000 at June 30, 2000 and $113,000 at
December 31, 1999 and is secured by equipment.
In July 1994, Techdyne (Europe) purchased the facility housing its
operations obtaining a 15 year mortgage which had a U.S. dollar equivalency
of approximately $439,000 at June 30, 2000 and $489,000 at December 31, 1999
based on exchange rates in effect at each of these dates.
Interest payments on debt amounted to approximately $193,000 and $345,000
for the three months and six months ended June 30, 2000 and $126,000 and
$252,000 for the same periods of the preceding year.
NOTE 4--Income Taxes
The Company files separate federal and state income tax returns from its
Parent, with its income tax liability reflected on a separate return basis.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial reporting
purposes a valuation allowance has been recognized to offset a portion of the
deferred tax assets.
The Company had domestic income tax expense of approximately $65,000 and
$45,000 for the three months and six months ended June 30, 2000 and $35,000
and $62,000 for the same period of the preceding year.
Techdyne (Europe) had no income tax expense or benefit for the three
months or six months ended June 30, 2000 or for the same periods of the
preceding year due to its loss and it having utilized all available tax loss
carrybacks.
Income tax payments amounted to $10,000 and $342,000 for the three
months and six months ended June 30, 2000 and $100,000 and $102,000 for the
same periods of the preceding year.
NOTE 5--Transactions with Parent
The Parent provides certain financial and administrative services to
the Company under a service agreement. The amount of expenses covered under
the service agreement totaled $90,000 and $180,000 for the three months and
six months ended June 30, 2000 and $102,000 and $204,000 for the same periods
of the preceding year.
Advances from our Parent were made under a demand convertible promissory
note with interest at 5.7%. On September 30, 1999, the Parent converted the
note balance of approximately $2,532,000, including accrued interest, into
approximately 1,447,000 shares of the Company's common stock. Advances from
the Parent on the balance sheet represent an advance payable to the Parent of
approximately $511,000 at June 30, 2000 and $498,000 at December 31, 1999
with interest at 5.7%. Interest on the advances and convertible note amounted
to approximately $7,000 and $14,000 for the three months and six months ended
June 30, 2000 and $44,000 and $89,000 for the same periods of the preceding
year and is included in the net balance due the Parent.
The Company had manufactured certain products for the Parent. Sales of
the products were $23,000 for the three months and six months ended June 30,
1999. After the first quarter of 2000, the Company ceased manufacturing for
the Parent.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(Unaudited)
NOTE 6--Commitments and Contingencies
Lytton sponsors a 401(k) Profit Sharing Plan covering substantially all
of its employees. The Company adopted this plan as a participating employer
effective July 1, 1998. The discretionary profit sharing and matching
expense, including that of the Company and Lytton amounted to approximately
$20,000 and $42,000 for the three months and six months ended June 30, 2000
and approximately $20,000 and $39,000 for the same periods of the preceding
year.
Lytton leases its operating facilities from an entity owned by the
former President and currently the part-time Assistant to the President of
Lytton and his wife, the former owner of Lytton. The lease expires July 31,
2002 and requires annual lease payments of approximately $218,000, adjusted
each year based upon the Consumer Price Index. During the six months ended
June 30, 2000, approximately $112,000 was paid under the lease compared to
approximately $109,000 for the same period of the preceding year.
NOTE 7--Stock Options
In May 1994, the Company adopted a stock option plan for up to 250,000
options. The options were exercisable at $1 per share through May 24, 1999.
On June 30, 1998, 115,000 of these options were exercised and on May 10, 1999,
50,000 of the remaining options were exercised. The Company received cash
payment of the par value and the balance in three year promissory notes,
presented in the stockholders' equity section of the balance sheet, with
interest at 5.16% for the June 1998 exercises and 4.49% for the May 1999
exercises.
On February 27, 1995 the Company granted non-qualified stock options to
directors of Techdyne and its subsidiaries for 142,500 shares exercisable at
$1.75 per share for five-years. In April 1995, the Company granted a non-
qualified stock option for 10,000 shares to its general counsel at the same
price and terms as the directors' options. On February 25, 2000, 145,000 of
these options were exercised. The Company received cash payment of the par
value and the balance in three year promissory notes, presented on the
stockholders' equity section of the balance sheet, with interest at 6.19%.
In June 1997, the Company adopted a stock option plan for up to 500,000
options, and pursuant to this plan the board granted 375,000 options exer-
cisable for five years through June 22, 2002 at $3.25 per share, with 345,000
of these options outstanding at June 30, 2000. On June 30, 1999, the Company
granted 52,000 options exercisable for three years through June 29, 2002 at
$4.00 per share with 36,000 options outstanding at June 30, 2000. On August
25, 1999, the Company granted 16,000 options exercisable for three years
through August 24, 2002 at $4.00 per share with 13,000 options outstanding at
June 30, 2000. On December 15, 1999 the Company granted 19,000 options
exercisable for three years through December 14, 2002 at $4.00 per share with
16,000 options outstanding at June 30, 2000. On May 24, 2000, The Company
granted 3,000 options exercisable for three years through May 23, 2000 at
$4.00 per share, which remain outstanding at June 30, 2000.
In May, 1998, as part of the consideration pursuant to an agreement for
investor relations and corporate communications services, the Company granted
options for 25,000 shares of its common stock exercisable for three years
through May 14, 2001 at $4.25 per share. Options for 6,250 shares of the
Company's common stock vested during 1998 with no additional options to vest
due to cancellation of this agreement in August, 1998.
The Company entered into a consulting agreement on July 1, 1999 for
financial advisory services with the agreement to end on September 15, 2000.
As compensation, the consultant received non-qualified stock options to
purchase 100,000 shares of the Company's common stock exercisable at $3.50
per share that will expire on September 15, 2000. These options were valued
at $40,000 and resulted in approximately $8,000 and $16,000 expense during
the three months and six months ended June 30, 2000.
<PAGE>
TECHDYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(Unaudited)
NOTE 8--Common Stock
In conjunction with the Company's 1995 public offering, the underwriter
received warrants to purchase 100,000 shares of common stock and/or 100,000
warrants exercisable through September 12, 2000 at $6.60 per share of common
stock and $.25 per warrant with each warrant exercisable into common stock at
$8.25 per share.
NOTE 9--Acquisition
On July 31, 1997, the Company acquired Lytton, which manufactures and
assembles printed circuit boards and other electronic products, for $2,500,000
cash, paid at closing, and issuance of 300,000 shares of the Company's common
stock. The Company guaranteed that the seller would realize a minimum of
$2,400,000 from the sale of these shares of common stock based on Lytton
having achieved certain earnings objectives. The total purchase price in
excess of the fair value of net assets acquired is being amortized over 25
years. Additional contingent consideration was due if Lytton achieved pre-
defined sales levels. Additional consideration of approximately $396,000,
$290,000 and $154,000 was paid in April 2000, April 1999 and April 1998,
respectively, based on sales levels. As the contingencies have been resolved,
additional consideration due, has been recorded as goodwill, and is being
amortized over the remainder of the initial 25 year life of the goodwill.
In July 1998, the Company advanced the seller approximately $1,278,000
("Advance") toward the guarantee for the sale of the Company's common stock
in addition to the prior sales by the seller. Subsequently, the Company
guaranteed the seller aggregate proceeds of no less than $1,100,000 from the
sale of the remaining common stock if sold on or prior to July 31, 1999. In
July 1999, the Company forgave the Advance and issued payment of $1,100,000
to the seller, which together with the proceeds realized by the seller from
the sale of stock in 1998 satisfied the Company's remaining obligation under
the $2,400,000 guarantee. The remaining 295,000 shares of common stock held
by the seller as security for the remaining $2,378,000 guarantee were returned
to the Company and were cancelled.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q that are
not historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of the 1934. The Private Securities Litigation Reform Act of 1995 (the
"Reform Act") contains certain safe harbors regarding forward-looking
statements. Certain of the forward-looking statements include management's
expectations, intentions and beliefs with respect to the growth of the
Company, the nature of the electronics industry in which we are engaged as a
manufacturer, our business strategies and plans for future operations, our
needs for capital expenditures, capital resources, liquidity and operating
results, and similar expressions concerning matters that are not historical
facts. Such forward-looking statements are subject to risks and uncer-
tainties that could cause actual results to materially differ from those
expressed in the statements. All forward-looking statements included in
this document are based on information available to us on the date hereof,
and we assume no obligation to update any such forward-looking statement.
The following cautionary statements are being made pursuant to the provisions
of the Reform Act with the intention of the Company obtaining the benefits of
the safe harbor provisions of the Reform Act. Among the factors that could
cause actual results to differ materially are the factors detailed in the
risks discussed in the "Risk Factors" section included in our Registration
Statements, as filed with the Securities and Exchange Commission ("Commission")
Form SB-2 (effective September 13, 1995), and Form S-3 (effective December 11,
1996) and as amended or supplemented.
We continue to depend upon a relatively small number of customers for a
significant percentage of our net revenue. Significant reductions in sales to
any of our large customers would have a material adverse effect on our results
of operations. The level and timing of orders placed by a customer vary due
to, among other variables, attempts to balance inventory, design changes,
demand for products, competition and general economic conditions. Termination
of manufacturing relationships or changes, reductions or delays in orders as
had occurred in the past, could have an adverse effect on our results of
operations or financial condition.
The industry segments served by the Company and the electronics industry
as a whole, are subject to rapid technological change and product obsolescence.
Discontinuance or modification of products containing components manufactured
by the Company could adversely affect our results of operations. The
electronics industry is also subject to economic cycles and has in the past
experienced, and is likely in the future to experience, recessionary periods.
A general recession in the electronics industry could have a material adverse
effect on our business, financial condition and results of operations.
Due to our utilization of just-in-time inventory techniques, the timely
availability of many components is dependent on our ability to continuously
develop accurate forecasts of customer volume requirements. Component
shortages resulted in manufacturing and shipping delays and increased component
prices, which have had an adverse effect on our results of operations during
the first half of 2000. It is important for us, and there are significant
risks involved, to efficiently manage inventory, properly time expenditures
and allocations of physical and personnel resources in anticipation of future
sales, evaluate economic conditions in the electronics industry and the mix of
products, whether PCBs, wire harnesses, cables or turnkey products, for
manufacture.
Although we believe that our operations utilize the assembly and testing
technologies and equipment currently required by our customers, there can be
no assurance that our process development efforts will be successful or that
the emergence of new technologies, industry standards or customer requirements
will not render our technology, equipment or processes obsolete or
noncompetitive. In addition, to the extent that we determine that new
assembly and testing technologies and equipment are required to remain
competitive, the acquisition and implementation of such technologies and
equipment are likely to require significant capital investment.
Our results of operations are also affected by other factors, including
price competition, the level and timing of customer orders, fluctuations in
material costs, the overhead efficiencies achieved by us in managing the
costs of our operations, our experience in manufacturing a particular product,
the timing of expenditures in anticipation of increased orders, and selling,
general and administrative expenses. Accordingly, gross margins and
operating income margins have generally improved during periods of high
volume and high capacity utilization. We generally have idle capacity and
reduced operating margins during periods of lower-volume production.
<PAGE>
Results of Operations
Consolidated revenues increased approximately $1,824,000 (17%) and
$4,615,000 (23%) for the three months and six months ended June 30, 2000
compared to the same periods of the preceding year. There was an increase in
domestic sales of $1,369,000 (14%) and $4,086,000 (22%), and an increase in
European sales of $455,000 (63%) and $541,000 (33%) for the three months and
six months ended June 30, 2000 compared to the same periods of the preceding
year.
Interest and other income was approximately the same for the three
months ended June 30, 2000 and decreased by approximately $12,000 for the
six months ended June 30, 2000 compared to the same periods of the preceding
year. The decrease for the six months ended June 30, 2000 reflected a
decrease in interest income as a result of a reduction in invested funds
with this decrease being largely offset by increased interest on stock
option notes during the second quarter of 2000.
Significant reductions in sales of Techdyne (Europe) over recent years
have resulted in continuing losses, with net losses for this subsidiary
amounting to $114,000 and $207,000 for the three months and six months ended
June 30, 2000 and $201,000 and $278,000 for the same periods of the preceding
year. Techdyne (Europe) has continued its efforts at new business development
which has resulted in increased sales and reduced losses in 2000 compared to
1999; however, the continuing losses have resulted in our ongoing evaluation
of the future prospects for this facility.
Approximately 51% of our consolidated sales for the six months ended
June 30, 2000 were made to five customers. Customers generating at least 10%
of sales included Motorola (11%) and PMI Food Equipment Group (16%).
Approximately $3,963,000 (34%) of Lytton's sales for the six months ended
June 30, 2000 were to its major customer, PMI Food Equipment Group. The loss
of, or substantially reduced sales to any major customer would have an adverse
effect on our operations if such sales are not replaced.
Cost of goods sold as a percentage of sales amounted to 88% and 90% for
the three months and six months ended June 30, 2000 and 88% and 89% for the
same periods of the preceding year reflecting changes in product mix and a
diversification of our customer base. We have experienced increases in
component costs during the first half of 2000 which has had a negative effect
on our profit margins.
Selling, general and administrative expenses, increased by approximately
$148,000 (14%) and $351,000 (17%) for the three months and six months ended
June 30, 2000 compared to the same periods of the preceding year. The
increase in 2000 compared to the preceding year included increases in the
cost of support personnel and increased marketing costs associated with
efforts to increase sales. Selling, general and administrative expenses
amounted to approximately 10% of sales for both the three months and six
months ended June 30, 2000 compared to 10% and 9% for the same periods of
the preceding year.
Interest expense increased approximately $25,000 and $55,000 for the
three months and six months ended June 30, 2000 compared to the same periods
of the preceding year reflecting the increased borrowings of Lytton, a
portion of which were utilized to fund the remaining $1,100,000 payment in
July, 1999, on the Lytton acquisition purchase price guarantee and increases
relating to increased borrowings under our new credit facilities. These
increases were partially offset by reductions of $37,000 and $75,000 for
the three months and six months ended June 30, 2000 in interest on loans
from the Parent due to the Parent's conversion on September 30, 1999 of
approximately $2,532,000 of a convertible note receivable from us. The
prime rate was 9.50% at June 30, 2000 and 8.50% at December 31, 1999.
Liquidity and Capital Resources
We had working capital of $11,049,000 at June 30, 2000, an increase of
$63,000 (1%) during the first half of 2000. Included in the changes in
components of working capital was a decrease of $58,000 in cash and cash
equivalents, which included net cash provided by operating activities of
$281,000, net cash used in investing activities of $1,136,000, (including
$736,000 from additions to property and equipment and $396,000 additional
consideration regarding the Lytton acquisition), and net cash provided by
financing activities of $770,000 (including net line of credit borrowings
of $890,000, proceeds of $150,000 from Lytton's borrowing under its equipment
acquisition note and payments on long-term debt of $284,000).
<PAGE>
On February 9, 2000, we entered into two credit facilities with The
Provident Bank in Ohio for an aggregate borrowing of $5,500,000. This new
financing replaced a line of credit and three commercial loans with Nations-
Bank of Florida and a smaller borrowing from another Florida bank. The new
financing includes a $4,500,000 three-year revolving line of credit,
renewable annually at the discretion of the bank, which credit line carries
an interest rate of prime minus .25%, or at a fixed rate equal to the
relevant quoted LIBOR rate plus 2.5%, at our election, and a five-year term
loan of $1,000,000 at the same interest rate as the revolving line of credit.
The line of credit had an outstanding balance of $3,255,000 at June 30, 2000
and the term loan had an outstanding balance of $933,000 at June 30, 2000.
Total outstanding borrowings under the refinanced loans amounted to
approximately $3,297,000 at December 31, 1999. See Note 3 to "Notes to
Consolidated Condensed Financial Statements."
Lytton has a $3,000,000 three year line of credit, a $1,400,000 term
loan, and a $500,000 equipment loan agreement. The line of credit,
originally for one year, was amended to a three-year term coinciding with the
term of the Company's line of credit with the interest rates the same as
provided to the Company in its credit facilities. The line of credit had an
outstanding balance of $2,742,000 at June 30, 2000 and $2,830,000 at December
31, 1999. The term loan had a balance of $1,153,000 at June 30, 2000 and
$1,283,000 at December 31, 1999. The equipment loan agreement had an
outstanding balance of $150,000 at June 30, 2000 with no outstanding balance
at December 31, 1999. See Note 3 to "Notes to Consolidated Condensed
Financial Statements."
Lytton has an equipment loan maturing in April 2001 which had an
outstanding balance of $90,000 at June 30, 2000 and $113,000 at December 31,
1999. In July, 1994 Techdyne (Europe) purchased the facility in Scotland
housing its operations for approximately $730,000, obtaining a 15-year
mortgage which had a U.S. dollar equivalency of approximately $439,000 at
June 30, 2000 and $489,000 at December 31, 1999, based on exchange rates in
effect at each of these dates. See Note 3 to "Notes to Consolidated
Condensed Financial Statements."
We acquired Lytton on July 31, 1997. The Stock Purchase Agreement
provided for incentive consideration to be paid in cash based on specific
sales levels of Lytton for each of three successive specified years,
resulting in additional consideration of approximately $396,000, $290,000
and $154,000 paid in April 2000, April, 1999, and April, 1998, respectively.
See Note 9 to "Notes to Consolidated Condensed Financial Statements."
We continue to attempt to expand our operations through acquisitions of
companies in similar businesses, as with the Lytton acquisition. There can be
no assurance that we would be able to finance such acquisitions from our own
capital or be able to obtain sufficient external financing.
We believe that current levels of working capital and working capital
from operations will be adequate to successfully meet liquidity demands for
at least the next twelve months.
New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for
fiscal years beginning after June 15, 2000. FAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities
and requires, among other things, that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that these
instruments be measured at fair value. We are in the process of determining
the impact that the adoption of FAS 133 will have on our consolidated
financial statements.
Inflation
We attempt to pass on increased costs and expenses by increasing selling
prices when and where possible and by developing different and improved
products for our customers that can be sold at targeted profit margins.
Increases in component costs have had an adverse effect on our results of
operations for the first half of 2000.
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
------ ---------------------------------------------------
On May 24, 2000, the annual meeting of shareholders was held to elect
seven members to the board of directors to serve until the next annual
meeting in 2000. Each nominee, five of whom have been directors for many
years, Messrs. Thomas K. Langbein, Barry Pardon, Joseph Verga, Peter D.
Fischbein and Anthony C. D'Amore, and the two other nominees, Lytton
Crossley and Edward Diamond were elected by a vote of 5,027,060 shares for
and no votes against and no abstentions. There were no abstentions and no
broker non-votes by virtue of the fact that no proxies were solicited, since
the Parent, Medicore, Inc. owned approximately 72% of the voting equity of
the Company. Wiss & Company LLP, the Company's independent accountants,
were ratified as the Company's independent auditors for 2000 with 5,027,060
votes for ratification, no votes against, and no abstentions.
Item 6. Exhibits and Reports on Form 8-K
------ --------------------------------
(a) Exhibits
Part I Exhibits
None
Part II Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended June 30,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHDYNE, Inc.
/s/ Daniel R. Ouzts
By----------------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Accounting Officer
Dated: August 14, 2000
